NEW BEST IDEA SHORT.
The overcapitalized roll-up is struggling under the weight of the lack of industry profitability. Hedgeye Cannabis is adding Curaleaf (CURLF) as a Best Idea Short.
The pain has just started in the cannabis space, and only federal policy changes can fix the dynamics of this broken market. Back in 2020, money started to flow into the industry with the belief that something would change in D.C. once democrats took control of the White House, Senate, and the House. Since that point, nothing has happened at the federal level, most MSO's overextended themselves, and the money well has dried up.
Back in January, Curaleaf announced the closure of most of its operations in California, Colorado, and Oregon. Additionally, in an effort to further optimize operations and reduce costs, the company said that it would consolidate cultivation and processing operations in Massachusetts to a single facility in Webster, resulting in the closure of its Amesbury facility. The company had also reduced its payroll by 10%.
Yesterday, the company confirmed that they plan to close one of its two cultivation facilities in New Jersey and eliminate as many as 40 jobs in the state. Curaleaf was the largest grower and seller of cannabis in the state. “Curaleaf is phasing out cultivation at our Bellmawr, New Jersey location to meet current business needs, and will utilize that location for other operations at this time. This allows us to consolidate our production of key product platforms with our Winslow facility and will streamline processes to increase output,” the statement said. “Winslow has the capacity to support New Jersey’s overall market demand.”
The decisions Curaleaf management team is currently making are strictly a mindset of survival. In the coming months to years, we will see many cannabis companies close their doors for good. The steps that Curaleaf are making will result in better odds that they will still be standing when federal legalization occurs, but are also causing 50% downside risk in the near term.
DC GETS MORE CANNABIS but will need supply.
Back in 2010, DC legalized medical cannabis and allowed 9 dispensaries to operate within its borders. The number of dispensaries has not been expanded since 2010, even with the district changing rules allowing anyone who walks into a dispensary to claim that they are a medical patient without seeing a doctor. This has caused for many black market dispensaries to open up during that time frame. The good news is that Congress just moved forward with a D.C. medical cannabis expansion bill which will become law. It removes license caps, provides 280E tax relief, lets patients self-certify without doctors, prioritizes equity, and allows on-site consumption facilities while providing for enforcement against unlicensed sellers. The bad news for the district is that there is nowhere to grow cannabis in DC. So how will they fix the supply issue? The easy and most efficient way to solve this would be to enter into an interstate commerce agreement with one of the west coast states. On that subject, while we already have interstate commerce laws in California and Oregon, the state of Washington's House Regulated Substances and Gaming Committee approved a Senate-passed bill to legalize interstate marijuana commerce. Once passed, the three west coast giants are expected to pressure the DOJ to make a ruling on this subject matter.
Zurich moves forward with weed.
Switzerland has approved plans to legalize the sale and consumption of cannabis in Zurich in a trial designed to assess social and economic benefits. In this trial. 2.1k resistance will be permitted to buy and consume regulated cannabis for personal use. “The idea is to get robust real-world evidence that serves policymaking for new [national] regulation on cannabis,” Barbara Burri, project manager at Zurich’s municipal health department, said. Europe has started to make a move forward on rethinking its cannabis stance, with Germany expected to formally introduce a cannabis legalization bill in the coming weeks to months.
